The behavior of the market is unpredictable, but the behavior of the market's participants is about as predictable as you can get. For long-term success, investors need the discipline to do two things:

  1. Invest during points of pessimism
  2. Exercise patience.

The current mood in the markets, especially the U.S. market, is clearly pessimistic. The slightest hint of an asset impairment or credit write-down wreaks havoc on the parties involved. In many cases, Mr. Market is correct in his ruthlessness -- some businesses have decided to exploit every short-term opportunity for profit by sacrificing their long-term welfare.

The recent acquisition offer by Bank of America (NYSE: BAC) for Countrywide Financial (NYSE: CFC) is proof positive of this corporate irresponsibility. The purchase price of $4.1 billion is a small fraction of the $20 billion-plus market value Countrywide once commanded less than a year ago. Investors in Countrywide who thought they were getting a bargain investment at $10 billion, or even $5 billion, are painfully realizing the consequences of reaching for the cookie jar once too often.

The gold bug
The endless news of new victims of the credit turmoil pushes investors en masse to do what they always do: run for the exits, abandon equities, and get hit by the gold bug. The price of gold continues to reach new highs, and the proliferation of gold-based exchange-traded funds has certainly aided in its ascent. Gold has always been the ultimate flight-to-safety investment during times of equity turmoil.

But unless you have precise market-timing abilities, gold has underperformed equities as a long-term investment when adjusted for inflation. If you can't make a significant investment at the maximum point of pessimism -- or if you can't sit still while the value of your investment has been temporarily impaired -- there are excellent alternatives.

Better than gold AND cash in the bank
Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) is one of the most well-respected businesses in the U.S., if not the world. For 40 years, the company's book value grew at an annualized rate of more than 20%. Berkshire has had a couple of minor hiccups, but overall, it remains true to its core competencies: insurance and capital allocation. Over the years, Warren Buffett has done a masterful job of positioning Berkshire to perform for the long haul.

Like any publicly traded company, Berkshire's stock price can exceed intrinsic value, although Buffett has tried to keep the two on par. When Berkshire trades at or below intrinsic value, owning shares in the company is better than cash in the bank. Berkshire is the flight-to-safety investment. In the current credit turmoil, as major credit insurers such as MBIA (NYSE: MBI) and Ambac (NYSE: ABK) are working to maintain their AAA credit ratings, there's no doubt Berkshire will maintain its top-notch rating.

The recent market volatility has affected most equities, Berkshire included. But Berkshire, through Buffett, has always taken advantage of market misbehavior and profited tremendously. An investment in Berkshire, over the long term, is both safer and better than gold or cash in the bank. You get a company with more than $30 billion in cash managed by someone more talented than you and me; dozens of solid operating businesses; and a steady flow of dry gunpowder in the form of insurance float to take advantage of market misbehavior.

This could be huge
Berkshire's recent foray into bond insurance presents a type of opportunity Buffett loves. There's no telling how big a business this could become for Berkshire. Currently, and always prudently, Berkshire keeps it small and disciplined. Berkshire will only insure municipal bonds, securities typically known to be more transparent than other exotic issues. Berkshire's foray into New York suggests that other states are very much in need of an ultra-creditworthy insurer, too.

The credit turmoil has resulted in favorable rates for bond insurers, especially Berkshire with its AAA rating. At the same time, it's now more expensive for borrowers like municipalities to access capital. In this environment bond issuers benefit from reduced borrowing costs even after paying bond insurance premiums. Buffett has said that Berkshire "won't stray" from only insuring municipal bonds. If the prices are right, this could be a big deal for Berkshire.

A $200 billion growth company
By all metrics, Berkshire should still be viewed as a growth company -- even with a current valuation of some $200 billion. And if pessimism continues to rule the state of the equity market, then Berkshire Hathaway becomes all the more compelling.

Further Foolishness:

Berkshire Hathaway is a recommendation of both Motley Fool Stock Advisor and Inside Value. Bank of America is an Income Investor pick.

Fool contributor Sham Gad is managing partner of the Gad Partners Fund, a value-centric investment partnership operating in similar fashion to the 1950s Buffett Partnerships. Both he and The Motley Fool have a stake in Berkshire Hathaway. The Fool has a disclosure policy.